Dogs of the Dow: Amazing Investment Strategy with 20.3% Returns

When it comes to investing, you need a strategy that is simple to implement, yet gets great results. Here is an innovative way to do that.

A Simple Investment Strategy That Isn’t Barking Mad

When I was a kid, our family acquired no less than four dogs, plus a few additional ‘hangers-on’ who kind of adopted us. Every time I came home from school, there seemed to be another new canine looking up at me with pleading eyes and requesting a home.

The dogs were cool to have around, but between food and vet bills and everything else, they were quite a drain on the family’s finances. If we had acquired them as an investment, it would definitely have been a ‘dog’ of a holding. However, there is one investment strategy that allows you to turn ordinary ‘dogs’ into winning greyhounds. This is the ‘Dogs of the Dow’ investment strategy, and it is one that is a great vehicle for savvy investors. Here’s why…

Walking the Middle Line

Investors have to make a choice about their strategy for making money. The safe and easy way to manage your investments is to let someone else deal with all the worry. Put your money in mutual funds and ETFs, so that the professional money men can deal with all the hassle of selecting stocks, etc.

Invest in the dogs, and you may be amazed at how good the results are.

There are certainly very good reasons for doing this, and I would recommend that most people should have a sizeable portion of their money invested in this way. But it has its downside, too. Few funds of this type beat the market, and index funds by definition cannot beat the market – because they are the market!

So if you are looking to grow more wealth aggressively, you have to take a more active approach to investing. You need to be selecting stocks yourself and buying them individually. Unfortunately, this approach also requires a great deal of time and effort. You need to do a great deal of research, and even then there is no guarantee that you will consistently pick winners.

Wouldn’t it be great if there was some middle way? That is, an investment approach that is more active than investing in funds, but less time-intensive than following individual stocks? Well, the good news is that this is exactly where the ‘Dogs of the Dow’ strategy fits in.

The ‘Dogs of the Dow’ Investment Strategy

This investment style was initiated by Michael Higgins in his book Beating the Dow. In this case, dogs are not failing stocks, but rather stocks that yield high dividends. He defines the Dogs of the Dow as the 10 stocks in the Dow Jones Industrial Average (DJIA) that paid the highest dividend in the most recent year.

The Dogs of the Dow strategy is simple. At the start of the year buy an equal dollar amount of each of those high-yielding stocks from the previous year and hold them for twelve months. When the year is up, you review the Dow, and identify which 10 stocks have yielded the highest dividends in the current year. Then you rebalance your portfolio accordingly.

The premise behind this strategy is that the highest-yielding stocks are those which are currently the most undervalued – the stock price is not currently reflecting their true worth. But as the market is assumed to be efficient over time, the price of these stocks is likely to rise in consideration of their yield. Therefore by consistently investing in this way, you have a good expectation of beating the market.

The track record of this strategy suggests that it has a lot going for it. Between 1973 and 1996, for example, this approach to investing would have brought you an average annual return of 20.3%, compared to the 15.8% achieved by the Dow.

But there have also been some years when the Dow has performed better, so you should view this as a long-term investment strategy. But if the patter of the past continues, you can expect to beat the market by about 3% on average using the Dogs of the Dow approach.

Pros of the ‘Dogs of the Dow’ Strategy

There are many reasons why this approach to investing is popular:

  • It's a simple, hands-on approach that allows anyone to get actively involved in investing
  • By focusing only on Dow stocks, it keeps your money in relatively safe investments
  • It offers the chance to get involved in selecting stocks without taking big risks
  • It has proved to be an effective strategy over many years
This is a fantastic investment strategy that doesn't get the attention it deserves. We all want an investment approach that offers higher than average returns without taking silly risks. This is a great way to achieve that. It sticks to the big stocks that you know are a safe bet. Yet it delivers an innovative strategy that allows you to really push your returns to better levels. If you want to make a great return on yoru investment money without risking losing everything, then read this.


Cons of the ‘Dogs of the Dow’ Strategy

  • Considering only dividend yield is perhaps an overly-simplistic view of investing
  • It limits your exposure to 10 stocks out of a maximum selection of 30
  • It takes no account of fundamentals or what is happening in the market
  • You may have to buy and sell several stocks each year, leading to higher trading costs than 'buy and hold' investment strategies

Variations on the ‘Dogs of the Dow’

Because this approach is simple, many people have tried to find ways to improve on it, so there are now several variations of the strategy. The most popular of these is the Small Dogs of the Dow strategy. In this case, you select the 10 highest-yielding stocks on the last day of the year in the usual way. But from these 10 stocks, you then select the five with the lowest stock price. These become your Small Dogs of the Dow, and you buy equal dollar amounts of each of these five securities.

So why should you consider this approach? Well - since 1973, this strategy has managed an average return of nearly 30% per year…not a bad number at all! Of course, past results are no guide to future performance, but the numbers are impressive enough to take seriously.

Dogs of the Dow…a Person’s Best Friend?

No investment strategy is perfect, and I would certainly not recommend that anyone should put all of their money into any one investment method. But if you want to have some fun in the market without driving yourself crazy following stocks, then it may be a good plan to put some of your money into the Dogs of the Dow.

You never know…over a few years, your cute little puppies might grow into monster Great Danes!

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I'm a busy Mom who loves blogging and spending quality time with my family. I also love helping other people to succeed in saving and making money.